Thursday, April 09, 2009

The stimulus legacy

If the government spends trillions and we still have a huge depression, people will say, “Think how bad things would have been if they hadn’t spent those trillions.” If they spend trillions and we don’t have a depression, people give them credit for averting the depression.

So even if the trillions do nothing, the government still has a strong incentive to appear to be doing something, even if the cost is high. And we will probably never learn whether the trillions were well spent, so we won’t know any better the next time around.

A similar thought occurred to me recently. The stimulus debate seems destined for a "heads-I-win-tails-you-lose" conclusion where it will be impossible to prove advocates of government spending wrong. When the economy recovers -- and recover it eventually will -- they will take the credit. If that recovery is overly sluggish then Paul Krugman will claim vindication as a leading voice for arguing that it wasn't big enough.